What Is Long Term Capital Gain Tax On Shares?
Long Term Capital Gain Tax on Shares is the tax levied on profits earned from selling equity shares held for 1 year or more. The tax rate is 10% on gains above ₹1 lakh, with gains up to ₹1 lakh per financial year being completely tax-free. This favorable tax treatment makes long-term share investments highly tax-efficient, as most investors never pay tax on their equity gains due to the ₹1 lakh annual exemption. The effective tax rate is often much lower than the nominal 10% rate due to this exemption.
LTCG Tax Rates and Exemptions
| LTCG Amount | Taxable Amount | Tax Payable | Effective Tax Rate |
|---|---|---|---|
| Up to ₹1 lakh | ₹0 | ₹0 | 0% |
| ₹1.5 lakh | ₹50,000 | ₹5,000 | 3.33% |
| ₹2 lakh | ₹1,00,000 | ₹10,000 | 5% |
| ₹5 lakh | ₹4,00,000 | ₹40,000 | 8% |
Tax Calculation Examples
Example 1: Gains ≤ ₹1 Lakh
Purchase Price: ₹5,00,000
Sale Price: ₹5,80,000
Holding Period: 1.5 years
LTCG: ₹80,000
Tax Payable: ₹0 (within ₹1 lakh exemption)
Example 2: Gains > ₹1 Lakh
Purchase Price: ₹3,00,000
Sale Price: ₹5,00,000
Holding Period: 2 years
LTCG: ₹2,00,000
Taxable LTCG: ₹2,00,000 - ₹1,00,000 = ₹1,00,000
Tax Payable: 10% × ₹1,00,000 = ₹10,000
Effective Rate: 5%
Tax-Saving Strategies
Spread Sales Across Years
If you have large gains, consider spreading share sales across multiple financial years to maximize the ₹1 lakh exemption benefit in each year.
Offset with Losses
Use capital losses (both short-term and long-term) to offset LTCG on shares, reducing your taxable gains and tax liability.
Hold for 1+ Year
Ensure shares are held for at least 1 year to qualify for long-term treatment and benefit from lower tax rate and exemption.
Maintain Records
Keep detailed records of purchase prices, sale prices, dates, and expenses for accurate tax calculation and filing.
Final Thoughts
Long Term Capital Gain Tax on Shares is highly favorable, with the ₹1 lakh annual exemption making it tax-free for most investors. The 10% tax rate on gains above ₹1 lakh results in very low effective tax rates, making long-term share investments one of the most tax-efficient options. By holding shares for at least 1 year, utilizing the ₹1 lakh exemption, spreading sales across financial years, and offsetting losses, you can minimize your tax liability significantly. Strategic tax planning can help you maximize after-tax returns from your share investments.